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Education, tax climate are keys to new economy success

March 7, 2006

KALAMAZOO--Michigan needs to expand the scope of its debate from one heavily focused on business taxes to a more comprehensive look at improving the state's reputation in the areas most likely to turn Michigan into a new economy force.

That's one conclusion of New Economy Progress: The Next Wave, a survey released in its entirety today by Western Michigan University during presentations by WMU President Judith I. Bailey in Dearborn at Inforum, formerly the Detroit Women's Economic Club, and in Grand Rapids before Inforum's West Michigan chapter.

The survey shows that favorable taxes and a well-educated work force are the two most important traits a state can have for new economy business development. But having an educated work force trumps taxes in states where the new economy is thriving. Michigan business people, the survey found, tend to focus on tax structure and give short shrift to the broad range of traits that lead to success in places like California and Massachusetts.

"For many of the traits that attract new economy businesses, Michigan is seen as only average by those in competitor states," says Bailey. "The good news is that Michigan has resources that are viewed as valuable by those both inside and outside of Michigan. As a state, we now need to shift our focus and build on those resources in a way that lets the rest of the country know we've made a commitment to becoming a powerhouse in the new economy."

The survey was completed for the WMU Research Foundation by EPIC-MRA, a Lansing-based public opinion, marketing and polling firm. It queried nearly 1,200 executives at new economy businesses in five states. Besides Michigan, Midwest states included in the survey were Illinois and Ohio, two states in hot competition with Michigan. California and Massachusetts were selected to represent states on the nation's coasts, where new economy businesses are thriving.

Key survey findings include the following.

Among five states surveyed, Michigan ranks fourth as a state conducive to new economy business. All survey respondents were asked to rank the states in the survey with business climates most conducive to new economy businesses. They placed California at the top, by a significant margin. Massachusetts, Illinois, Michigan and Ohio followed in that order.

New economy executives believe a state's success is driven by favorable tax policy and an educated work force. More than half (51 percent) of all survey respondents identified favorable state tax laws as "very important" to making a state or region conducive to the success of new economy businesses. And 50 percent identified an educated work force as "very important" to success.

A well-educated work force trumps taxes as a leading indicator that a state's business climate is conducive to new economy success. Among all respondents, 72 percent saw an educated work force as "above average" in importance or "very important" to success. Meanwhile, 68 percent of the same respondents put favorable tax law into those two categories.

Wide variation on this assessment exists among the states surveyed, however, with successful new economy states placing more value on having an educated work force. In California, 80 percent of respondents ranked an educated work force in the "above average" or "very important" categories, while only 67 percent of those same respondents put favorable tax law in those categories. The situation in Michigan is somewhat different. In Michigan, 52 percent put an educated work force in the top two categories, but 60 percent put favorable tax law in the top two slots. Michigan was the only one of the five states that gave the edge to favorable tax law.

Although tax policy is seen as very important, strength in other areas allows new economy businesses to thrive in states where taxes are high. Despite their onerous business tax structures, California and Massachusetts are rated as the states most conducive to nurturing new economy businesses among all five states studied. The majority of respondents in all states (53 percent) rated California as "below average" for having favorable tax law, but 46 percent of those surveyed still singled California out as being the state most conducive to business of the five states in the survey.

Michigan was seen as "below average" on the tax front by 19 percent of those surveyed and "average" by 54 percent--more favorable findings than those of either California or Massachusetts. Despite its seeming edge on the tax issue, Michigan does not have enough strength in other areas to boost it as an attractive place for new economy businesses to locate and thrive.

Michigan ranks fourth out of five in having an educated work force and fifth in valuing one. Only 42 percent of all those surveyed view Michigan as "above average" or "one of the best" when it comes to "being known for a well-educated work force." That puts Michigan fourth out of the five states surveyed, with California first at 71 percent and Ohio dead last at 29 percent.

Of equal importance is the fact that Michigan business people do not yet see an educated work force as critical to the state's future. Only one in three (34 percent) Michigan respondents chose an educated work force as "very important" to success, compared with 58 percent in California and 65 percent in Massachusetts.

Michigan needs to pump more life into its life sciences initiative. In Michigan, 28 percent of respondents have confidence that Michigan can become a player in the life sciences, a figure that has held steady since the first WMU new economy survey in 2005. Overall, however, only 14 percent of all those surveyed have confidence in Michigan's potential in the life sciences.

And Michigan's new economy community is not focused on the life sciences. Of respondents in Michigan, only one in eight (12 percent) selected life sciences as among the most important disciplines on which the state's research universities should focus. But 33 percent included engineering as an important research university discipline. No other state placed more emphasis on engineering and less on the life sciences.

Startup funding and tax incentives are seen as Michigan's best life-science strategies. Overall, 31 percent of respondents saw startup funding for entrepreneurs as the most important strategy for boosting Michigan's life sciences potential, with tax incentives for life science startups a close second at 24 percent. In Illinois, Michigan's closest competitor, 32 percent of respondents saw tax incentives as the best strategy, and 28 percent selected startup funding.

Michigan business people are more pessimistic about Michigan's business climate than those outside the state. On six of 10 important business climate traits, Michigan-based business people rate their home state lower than others do. Only 24 percent of Michigan respondents, for example, said the overall quality of Michigan universities is "one of the best," as opposed to 40 percent of respondents from California who characterized Michigan universities that way.

Michigan universities are viewed nationally as key resources. Taken together, respondents from the five states called the overall quality of Michigan's universities "better than average" (52 percent) or "one of the best" (17 percent). Those figures put Michigan in second place in the survey, behind only Massachusetts, as a state viewed as having top-quality public universities. Michigan came in third behind Massachusetts and California on measures assessing the reputation of the state for having universities noted for working well with industry and the presence of nationally regarded research universities.

WMU's 2006 report is an expansion of a 2005 WMU/EPIC-MRA survey that focused only on Michigan. Primary businesses represented in the survey included engineering; information technology; life sciences and scientific testing; telecommunications and related equipment and services; medical, dental and optical equipment; health care; and new economy manufacturing.

For the complete report, go to www.wmich.edu/neweconomynext.

Media contact: Cheryl Roland, (269) 387-8400, cheryl.roland@wmich.edu

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